Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Why the New BlackBerries Barely Matter to BlackBerry

Don’t confuse “BlackBerry Mobile” with the original BlackBerry.

BlackBerry Mobile wants to make a comeback in the smartphone market, which the brand ruled before the age of iPhones and Android devices. At Mobile World Congress 2018, BlackBerry Mobile chief commercial officer Francois Mahieu boldly declared that BlackBerry could capture 3% to 5% of the market for premium phones.

That would be a huge jump for BlackBerry, which controls less than 1% of the smartphone market today. Counterpoint Research analyst Neil Shah estimates that BlackBerry only sold 170,000 phones during the fourth quarter of 2017.

BlackBerry's KeyOne phone. Image source: BlackBerry.

To hit Mahieu's targets, Shah believes that BlackBerry needs to sell two to three million phones per quarter. That's a very tough target to hit, considering that BlackBerry Mobile only shipped about 850,000 devices for all of 2017.

If you haven't followed BlackBerry in a while, you might think this is just another doomed attempt by the company to revive its smartphone business. However, BlackBerry Mobile isn't actually part of the original BlackBerry (NYSE:BB) -- which stopped building its own phones in late 2016.

A tale of two BlackBerries

Back in 2009, BlackBerry -- then known as Research in Motion -- controlled about a fifth of the global smartphone market. But like its counterpart Nokia (NYSE:NOK), BlackBerry grew complacent, believing that it would always dominate the enterprise market and dismissing the growing threat of iPhones and Android devices.

By the time CEO John Chen replaced Thorsten Heins in late 2013, BlackBerry's smartphone market share had dropped below 1%. Chen pivoted BlackBerry devices away from its own BB operating system toward enterprise-class Android ones, but it was too little, too late.

BlackBerry's Motion phone. Image source: BlackBerry.

To offset BlackBerry's declining smartphone sales, Chen focused on strengthening the company's enterprise software and services businesses. Chen also gradually phased out BlackBerry's smartphone manufacturing business, announcing that it would outsource the production of BlackBerry-branded devices in 2016.

This led to a partnership with Chinese consumer electronics maker TCL, which launched "BlackBerry Mobile" as a new unit which licensed the right to make new BlackBerry phones. BlackBerry generates high-margin licensing revenues from TCL, but it doesn't shoulder any of the manufacturing or marketing expenses for new phones. But this also means that if a particular BlackBerry device sells well, TCL -- not BlackBerry -- reaps the rewards.

BlackBerry doesn't disclose exactly how much revenue it generates from this deal, but its total IP and licensing revenues surged 67% annually last quarter and accounted for 22% of its top line.

Following Alcatel and Nokia's footsteps

BlackBerry isn't the first company to partner with TCL. TCL previously signed a licensing agreement with Alcatel-Lucent, now part of Nokia (NYSE:NOK), to produce Alcatel-branded budget phones.

BlackBerry's retreat from the smartphone market also resembles Nokia's. Nokia sold its handset manufacturing unit to Microsoft in 2014, then formed the new Nokia Technologies licensing unit to collect licensing fees. Nokia then returned to the consumer electronics market by licensing its brand to Foxconn for the N1 tablet.

That partnership led to the creation of HMD Global, a new smartphone company led by former Nokia executives. HMD Global pays Nokia licensing fees and holds an exclusive manufacturing partnership with Foxconn's subsidiary FIH Mobile. That's why Nokia only generates licensing revenues from sales of new Nokia-branded devices.

Will BlackBerry make a mobile comeback?

It will be tough for BlackBerry to dent the premium smartphone market, but Nokia recently made a surprising comeback with a 1% market share, according to Counterpoint. 1% might not seem like much, but it gives Nokia a higher market share than established Android players like HTC and Sony.

BlackBerry Mobile thinks that its all-touch Motion smartphone and the KeyOne, which combines a touchscreen with a traditional BlackBerry keyboard, might win over consumers. Whether or not they'll succeed is anyone's guess, but investors should remember that TCL -- not BlackBerry -- is risking more money on these new devices.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Author

Leo is a Tech and Consumer Goods Specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012. His wheelhouse includes cloud, IoT, analytics, telecom, and gaming related businesses. Follow him on Twitter for more updates!